Regulation

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The European Union Emissions Trading Scheme is designed to reduce greenhouse gas emissions. It provides an economic incentive to reduce emissions in the most cost-effective way by capping greenhouse gas emissions from approximately 10,000 energy intensive installations in power generation and manufacturing industry sectors in the 27 EU countries plus Iceland, Liechtenstein and Norway - The Europe Economic Area (EEA). It also applies to circa 1,000 airlines and covers flights between and within EEA Member States with some exceptions. Following the Brexit deal agreed in December 2020 it also covers outbound flights between the EEA and the UK. The Scheme Regulates 43% of emissions in EU and is Currently in Phase 4 (2021-2030). Airlines/aircraft can use simplified procedures if they are classed as a small emitters (<25,000 tonnes in total to from and within the EEA, or <3,000 tonnes within EEA.). Airlines have to surrender allowances (EUAs) for every tonne of emissions they emit covering these flights, with some airlines having a proportion of allowances allocated for free. In 2024 the aviation cap amounts to 28,866,578 allowances. The total amount available for free allocation, which is this amount reduced by 25% in 2024 and by 50% in 2025 with and full auctioning (i.e. no free allowances) from 2026.

  The UK Emissions Trading Scheme is designed to mirror the EU ETS. The cap on greenhouse gas emissions from approximately 1,000 energy intensive installations in power generation and manufacturing industry sectors in the UK and It also covers within the UK and outbound flights to the EEA with minor exceptions. The same small emitters provisions apply as EU ETS and airlines have to surrender UK allowances for every tonne of emissions they emit covering these flights, with some airlines having a proportion of allowances allocated for free. UK ETS airlines received 4,355,344 free allowances in 2021 with this reducing incrementally to 4,085,973 by 2025. However, the years from 2023 to 2025 should be treated as indicative pending the outcome of the ongoing free allocation review which is yet to be published.

ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), is an offsetting compliance regime aimed at achieving carbon neutral growth (CNG) from 2020 onward. Due to the coronavirus crisis the original 2019 and 2020 average baseline was scrapped and 2019 will be used for the pilot phase of CORSIA which began in 2021. Airlines will have to offset emissions above 2019 levels to achieve carbon neutral growth with 2025 the first year that airlines have retire CORSIA eligible offsets in their respective countries registry. 

In March 2020 ICAO unveiled the offsets which are eligible for CORSIA compliance. These are:

• American Carbon Registry (ACR)
• China GHG Voluntary Emission Reduction Program 
• Clean Development Mechanism (CDM)
• Climate Action Reserve (CAR)
• The Gold Standard (GS)
• Verified Carbon Standard (VCS)

Eligible units under each of the programs shown above are only those which are issued to activities that started from 1 January 2016.

It is however unlikely that airlines will have to offset any emission in the pilot phase as the sector is not likely to return to pre coronavirus levels until 2024, the next phase of CORSIA.

There are also regional schemes including aviation emissions, both planned and already in place, in South Korea, Mexico, New Zealand and China.

The UK has put in place a SAF mandate which will start in 2025 at 2% of total UK jet fuel demand, increase on a linear basis to 10% in 2030 and then to 22% in 2040. From 2040, the obligation will remain at 22% until there is greater certainty regarding SAF supply. 

The EU has also put in place a SAF mandate increasing from 2% of aviation fuels in 2025 to 70% by 2050. Interim targets are 6% in 2030, 20% in 2035, 34% in 2040, 42% in 2045. There is also a synthetic fuel targets (which is SAF made from renewable hydrogen and carbon which is drawn off from an industrial source or captured directly from the air) as a proportion of the fuel mix. The targets for synthetic fuels are 1.2% in 2030, 2% in 2032, 5% in 2035, and progressively reaching 35% in 2050.

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